Rental affordability scheme scrapped

UDIA national president Cameron Shephard said cutting the National Rental Affordability Scheme was a bad move as it would prevent delivery of thousands of new affordable homes. ‘Since its establishment in 2008, NRAS has delivered 14,575 new homes for low- and moderate-income households, and was on track to provide 23,884 more.’ Photo: Glenn Hunt

Rebecca Thistleton

Low interest rates will underpin future strength in the housing market, rather than encouragement via the federal budget.

Economic forecasting outlined in Tuesday’s budget showed the government expects solid performance in the residential property market to be ongoing.

Dwelling investment projections rose from 3.5 per cent to 7.5 per cent for 2014-15, which would be a welcome economic boost if it eventuates as it would stimulate the construction sector and lessen the national under-supply of housing.

The budget papers noted that analysis used in generating budget estimates assumed no change in interest rates over the forecast period.

There was some contention within the property industry about whether the housing market can fulfil those projections after Tuesday night’s budget, as the tough stance taken by Treasurer Joe Hockey may harm sentiment and provoke caution from buyers. At the same time, broad cuts across the budget reached the National Rental Affordability Scheme and the first-home buyer savings account, which were both scrapped. The $3 million in funding previously allocated for the National Homeless Research Strategy was also cut.

AMP Capital’s chief economist, Shane Oliver, backed the budget as taking the country towards a surplus before a crisis hits. Mr Oliver said property prices were likely to continue rising on the back of low interest rates, although momentum may slow a bit from last year’s surge in Sydney and Melbourne.

John Kolenda, managing director of mortgage broker 1300HomeLoan, said the budget could be a “game changer” for the direction of interest rates and lessened the likelihood of a rise this year.

“Up until the budget, all indications favoured a rate rise but it is probably sitting at 50-50 at the moment, pending consumer reaction and confidence indicators over the next quarter,” he said.

“If the budget reaction has a material impact, then a rate reduction could equally be on the cards.”

Housing market patchy nationally

While house prices have thrived in Sydney and Melbourne, Mr Kolenda said strength in the housing market had been patchy on a national scale.

“Any premature response from the RBA in response to factors such as rising house prices in some states could have a negative impact on consumer sentiment.”

The Urban Development Institute of Australia warned interest rates alone would not be enough to keep driving the housing market to meet the federal government’s revised figure.

UDIA national president Cameron Shephard said that in a tough fiscal climate, the 2014-15 budget had delivered what it promised to deliver: considerable savings on the back of major cuts to government expenditure.

However, the UDIA stressed the need for a greater focus on driving economic growth. Mr Shephard said cutting the National Rental Affordability Scheme was a bad move as it would prevent delivery of thousands of new affordable homes.

“Since its establishment in 2008, NRAS has delivered 14,575 new homes for low- and moderate-income households, and was on track to provide 23,884 more,” he said. “The government will, however, be reviewing the operation of the scheme as a result of concerns it had with its administration, and UDIA is looking forward to working with the government on this review.”

The Housing Industry Association’s industry policy and media relations chief executive, Graham Wolfe, said broad budget cuts were framed in the context of addressing the budget deficit but were at the expense of worthwhile programs.

“The recovery in new home building has been highly dependent on demand generated from the household sector,” he said.

“Maintaining and improving consumer sentiment remains a priority.”

The Real Estate Institute of Australia’s president, Peter Bushby, was pleased negative gearing was unchanged as that could have reduced the supply of rental properties and wealth-creation opportunities.

“With budget forecasts of moderate growth, a slight increase in unemployment and inflation well within the RBA’s target zone, interest rates should remain low for some time and that is good news for home owners and prospective buyers,” he said.